What You Might Not Know About Home Construction Loans
Jessica MacDonald, GreenStone Financial Services Officer, Schoolcraft
GreenStone new home build


Whether you’re building your first home or your third, there are many factors to consider when you’re looking at a home construction loan. Are you going at it alone or contracting a builder? What happens if you go over budget? What’s your timeline?


Let’s consider the top three things you might not know about GreenStone’s home construction loans:


One – GreenStone offers financing for both fully contracted and self-built homes. This means people are free to act as their own general contractor versus needing to hire a licensed builder.


For instance, if people are skilled in the trades and have the knowledge and ability to tackle a construction project, they’d be looking for financing that allows this flexibility. In this case, the borrower would provide the sworn statement for the outline of costs, plans, specifications, sworn statement for draws, manage the draw process, sign the construction agreement, and get the appropriate paperwork through the process. Not every lender allows DIY projects. With over half our construction loans fitting this need, we’re experienced in it, and we like helping our members with them.


Two – An overrun budget is required for construction loans to protect our members. At GreenStone, we build in a 10% cushion to the budget. Especially with the current increased costs we’re experiencing, an overrun budget is a critical part of a construction loan. We want to make sure there’s enough money to finish the project.  Members want a house built, we want a house built, and no one wants to see it fall short.


For instance, on a $300,000 loan, our customers budget a $30,000 overrun. If by chance the project stays perfectly on budget, after the members have completed construction and received the certificate of occupancy, we can then reduce the loan amount by the unused $30,000 and recalculate the loan based on the principal and interest payment. Or, customers may still use that $30,000 to reimburse themselves for the cash they brought into the project, or do something extra, like complete a landscaping project.


Projects don’t always go as planned. That’s why we also require DIY home construction labor expenses to be accounted for up front. If a member is injured and can’t do the planned work themselves, the labor expenses allow them the ability to hire a subcontractor. Basically, part of our job is to help protect our members, and making sure there are adequate funds to complete the project is part of that support.


Three – GreenStone construction loans allow for 12 months to complete the project. During that timeline, members are responsible for interest-only payments on what is drawn.


For instance, if you have a loan for $200,000, you’re not paying that principal and interest payment at closing, you’re paying interest only on what’s been used during the 12-month timeline to build.


For a variable rate option, your interest rate varies during the home construction project as interest rates change. Once construction is finished, your loan will convert to a fixed rate mortgage. This conversion does not require a refinance nor a second closing.


If you choose a fixed rate, your loan will be locked into a fixed interest rate during the construction period, and that rate remains fixed at the same rate for the life of the mortgage. During the construction period, you will make interest-only payments on what has been disbursed at the time of the billing. You will have 6-12 months, depending on your loan product, to complete construction before principal and interest payments start.


As an added bonus, GreenStone commonly works with customers who finance vacant land, and then at a later time finance their new construction. That’s a great feeling, because we’re going to be with you all the way. To learn more about home construction loans, please visit greenstonefcs.com.




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